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The coalition argues that NHTSA adopted standards less stringent than the “maximum feasible level” Congress requires under federal law. Attorney General Rob Bonta’s office said stronger fuel economy requirements have helped motorists save money by reducing the amount of fuel their vehicles use. The coalition brought the challenge in the U.S. Court of Appeals for the First Circuit.

NHTSA’s final rule lowers the projected fleetwide fuel economy average for model year 2031 to 34.9 miles per gallon, compared with 50.4 mpg under the Biden administration’s standards, according to news reports.

The U.S. Department of Transportation released the rule on September 28, 2026. The administration said in its release that the Biden administration standards went “far beyond the requirements mandated by Congress” and “created a backdoor electric vehicle mandate.”

Coalition challenges agency analysis

In its lawsuit, the coalition alleges that NHTSA violated the Energy Policy and Conservation Act and the Administrative Procedure Act by failing to establish the maximum feasible fuel economy standards. It argues that the agency improperly excluded existing electric vehicles from its baseline analysis and adopted requirements below the efficiency the fleet achieved in 2021.

Bonta’s office also challenges the agency’s treatment of fuel savings, vehicle affordability, safety, and climate damages. It says the rollback would eliminate nearly $220 billion in fuel savings available under the previous standards. The rule also ends CAFE credit trading in 2028, which the state says would harm California’s electric vehicle industry.

Administration cites vehicle affordability

The Trump administration defended the rollback as a way to lower vehicle prices and reverse standards the administration considers an indirect electric vehicle mandate.

The administration’s analysis estimates that model year 2031 vehicles would cost an average of $1,289 less under the revised rule. Drivers would, however, incur more than $1,600 in additional fuel costs over the ​life of the vehicles, compared to the previous standards. The U.S. Department of Transportation said the rule would increase US gasoline consumption by 4.6% through 2050, compared to the prior standard, and would increase new car sales, according to news reports.

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The determinations come only weeks after the Trump administration directed Sable Offshore Corp. to restart the oil pipeline system serving the Santa Ynez Unit offshore oil field. In both cases, the administration cited national security risks tied to energy supply disruptions.

The determinations authorize the U.S. Department of Energy to deploy loans, purchase commitments, and other financial tools to accelerate project development and address what the administration described as “financing risks, regulatory delays, and market barriers.” The White House released five determinations covering oil production, natural gas and liquefied natural gas (LNG), coal-fired power, electric grid equipment, and “large-scale energy infrastructure.”

In the oil-focused determination, the administration states that domestic refining capacity, pipeline infrastructure, and fuel logistics are “essential to the national defense,” citing risks to military readiness from supply disruptions. A separate determination on coal states that it is necessary for baseload power supporting defense installations and energy-intensive technologies, including artificial intelligence.

The administration also identifies transformer shortages and transmission constraints as emerging vulnerabilities, stating that U.S. capacity “to design, produce, and deploy large-scale grid infrastructure, including transformers, high-voltage transmission components, advanced conductors, power electronics, substations, and grid-supporting manufacturing equipment, is dangerously limited.”

Assistant Press Secretary Taylor Rogers said the determinations “allow the Department of Energy to use funding secured in the One Big Beautiful Bill to strengthen our grid infrastructure and unleash reliable, affordable, secure energy.”

The April 20 actions expand on the administration’s earlier uses of emergency authorities to support domestic energy supply, including the directive to restart the pipeline system serving the Santa Ynez Unit offshore oil field.

The determinations also build on the administration’s January 2025 executive orders and memorandums that included the declaration of a national energy emergency.

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The order directs the state’s Energy Working Group, which is part of the so-called Infrastructure Strike Team, to immediately to identify projects that are eligible for expiring tax credits and that can begin construction before July 2026 or come online by December 2027. The group is to support state agencies in accelerating and prioritizing “all permitting, approval, and other agency actions that would enable and expedite the development of such projects.”

The order also requests the California Public Utilities Commission (CPUC) to

• Identify critical generation and storage projects expected to come online in the next three years and request that utilities under its jurisdiction prioritize actions to enable them to interconnect.

• Coordinate with utilities and the CAISO, the state’s utility operator, to identify priority actions to expedite transmission development that can support the connection of new resources in the next three years.

• Streamline project reviews by relying on recent updates to the CPUC’s transmission siting and permitting processes.

The order requests CAISO to identify and prioritize connecting commercially ready generation and energy storage resources, consistent with the CAISO tariff, to existing transmission infrastructure to support grid reliability for the CAISO balancing area.

The order directs the California Energy Commission (CEC) to review projects in its ongoing siting processes for any that may be eligible for the expiring federal tax credits. The CEC must also review its project siting processes for any additional opportunities to streamline project reviews.

The orders directs the California Natural Resources Agency (CNRA), the California Environmental Protection Agency (CalEPA), and the California State Transportation Agency (CalSTA) to review and assess the project siting and permitting processes of the boards, departments and commissions within their respective agencies for any opportunities to streamline and prioritize projects that may be eligible for the expiring federal tax credits.

GO-Biz must work with local permitting authorities through its Clean Energy Permitting Initiative to identify additional opportunities to support streamlining efforts for acceleration of deployment of large- scale clean energy infrastructure projects and especially ones that may be eligible for the expiring federal tax credits.

In a radical change to U.S. energy tax policy, the Act does not set an expiration date for most tax credits but instead links the duration of the credits to the overall U.S. reduction in GHG emissions, of which carbon is the primary emission. Several estimates find that the IRA could help the United States reduce economy-wide GHG emissions to 40% below 2005 levels by 2030, bringing the United States closer to President Biden’s target to reduce GHG emissions by 50-52 percent from 2005 levels by 2030.  Far from their historical role to support energy production as a way to address energy security concerns, tax credits are now being used to combat climate change by promoting a transition to a de-carbonized U.S. electricity sector. Given this sustained effort, and the absence of other federal climate programs, energy tax policy is now climate policy.

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A Focus on Tax Policy

With this focus on energy tax credits, the United States has forgone other approaches to reduce GHG emissions in the electricity sector, notably a federal cap-and-trade program, a federal renewable portfolio standard (RPS), and a federal feed-in tariff.  A federal cap-and-trade program was last seriously considered in the American Clean Energy and Security Act of 2009, which failed in the House of Representatives, and in the Clean Energy Jobs and American Power Act of 2010, which failed in the Senate. (The 2009 bill also included a proposed 3% federal renewable electricity standard, which is similar to an RPS). 

These policies have instead been pursued at the state and regional levels. California, the most active state in terms of climate policy, has enacted a series of climate bills since 2002. This includes GHG emission standards for passenger vehicles under AB 1493 (2002) along with GHG emission reduction targets of 1990 levels by 2020 under AB 32 (2006) and 40% below 1990 levels by 2030 under SB 32 (2016). AB 32 authorized the California Air Resources Board (CARB), the state’s clean air regulator, to develop a cap-and-trade program to reduce GHG emissions, and AB 398 (2017) extended the cap-and-trade program until 2030. Further, SB 100 (2018) set a goal for the state to reach 100% clean electricity by 2045.

In 2022, while the federal government put its focus on indirect tax credits, California continued to pursue more direct regulation and set new clean energy and emissions reduction targets. SB 1020 set interim targets that require that renewable and zero carbon sources make up 90% of the state’s electricity by 2035 and 95% by 2040. AB 1279 established a target of net-zero GHG emissions as soon as possible but no later than 2045 and net negative GHG emissions after 2045. The state also established a carbon removal and storage program under SB 905, targets for natural carbon removal and storage under AB 1757, and restrictions on oil drilling with a 3,200-foot buffer zone for oil wells under SB 1137. With implications for the state’s electrical grid, CARB also approved regulations to require the phase-out of the sale of new gasoline-fueled or diesel-fueled automobiles by 2035. (see California Implements More Ambitious Climate Agenda.)

Tax Credits and the Energy Transition

The Section 45 PTC and Section 48 ITC have been the primary tax incentive for renewable electricity, and the IRA has made them largely permanent. This is a significant change from past policy in which credits were implemented temporarily, with the expiration date regularly extended often after lapsing.  In implementing this change, the IRA renews and extends the Section 45 PTC and Section 48 ITC for existing renewable energy technologies through 2024. It then transitions to a new “technology-neutral” PTC under Section 45Y and ITC under Section 48E. These new “technology-neutral” tax credits provide continued support for established technologies and incentives for investment in new sources of zero-emissions energy production and energy transition technologies. The credits will remain in effect until the later of 2032 or a reduction in annual U.S. GHG emissions from electricity production equal to or less than 25 percent of GHG emissions for 2022.

To promote the development of clean energy technologies and domestic clean energy supply chains, the Act also adds a new IRC Section 45X advanced manufacturing PTC and expands the Section 48C advanced energy project ITC. It also makes stand-alone energy storage eligible for the Section 48 ITC, provides a new PTC for clean hydrogen, provides a new PTC to maintain production from existing nuclear facilities, and extends and expands Section 45Q carbon capture and sequestration tax credit. The Act also replaces the current energy tax credit system with a system of base credits and bonus credits to support domestic wages, domestic manufacturing, and investment in disadvantaged communities.

The IRA also implements transferable tax credits in an attempt to end project developers’ dependence on “tax equity” partnerships to finance projects. The value of tax credits is in offsetting a tax liability, and renewable energy projects usually require a number of years to generate taxable income.  Projects with minimal or no tax liability have often relied on investors to “monetize” tax credits.  In this type of transaction, investors with tax liability provide project capital in exchange for the tax credit that allows the investor to reduce its tax liability. The tax equity market has proven limited, however, with a small number of investors. Tax equity transactions also increase financing and transaction costs and reduce the amount of the credit that goes to the renewable energy developer. Scholars have recommended using direct cash subsidies or direct payments or making the tax credits refundable or tradable, and the IRA has implemented credit transferability with some limitations.

Taxes, and Spending?

Tax credits have long be a crucial component of a federal energy policy that relies on decentralized markets rather than on centralized regulations.  The use of credits as the primary GHG emissions strategy, however, is largely political. The most direct way to reduce carbon emissions is to price carbon through taxes or a cap-and-trade program. While this would encourage conservation and the use of renewable energy sources, it would also increase the cost of energy and risk political backlash.  Tax credits, by contrast, are a way to subsidize energy production from alternative energy sources and indirectly reduce carbon emissions.  Most significantly, it is easier to shield the public from their costs.

Tax credits are tax expenditures, which reduce federal revenue and, according to the U.S. Government Accountability Office (GAO), “have the same net effect on the federal budget as spending programs.” Politically, however, they are quite different. Tax expenditures can avoid annual review that is required for other spending measures, protecting them from increased political and public scrutiny and benefitting from political appeals to reduce taxes.  Tax expenditures also require only one legislative act and passage by only the Senate Finance Committee and the House Ways and Means Committee.   By contrast, direct spending requires authorizing legislation that is reviewed by subject-specific legislative committee, separate legislation to appropriate funds, and consideration by each chamber’s appropriations committee.  

Public support for a transition to renewable energy requires that energy remains affordable. It is politically easier to provide incentives, such as tax credits for renewable energy, rather than to impose direct costs through increased taxes.  In this sense, energy tax policy does not follow economic principles but rather is guided by political factors.

Energy and Political Transitions

In addition to its central role in energy policy, the energy tax credits in the IRA mark a significant transition in U.S. foreign and economic policy. For climate diplomacy, by helping the United States toward its Paris Accords commitment to reduce GHG emissions by 50% of 2005 levels by 2030, the Act will provide credibility that can allow the Biden administration to push for more ambitious climate targets during international climate negotiations.

The Act also has significant implications for U.S.-China relations. With the tax credits for domestic clean energy manufacturing, the United States has indicated that it will not use carbon pricing to compete with China, as the European Union is doing with its proposed carbon border tax. It will instead pursue a policy of support for onshoring domestic clean energy supply chains.

This strategy brings risks. Attempts to bring the renewable energy supply chain away from low-cost China to the United States could increase energy costs. The increased use of wind, solar, and batteries will greatly increase demand for metals and rare earth minerals, increasing the cost of minerals, materials, labor and other inputs. These trends could increase energy costs, accelerate global inflation, and make renewable energy uneconomic. Additionally, the U.S. strategy could have unintended, but easily foreseeable, consequences, as the IRA’s promotion of solar and wind energy could actually push the United States even more dependent on China for solar panels and wind turbines.

Using tax credits to increase deployment of renewable energy and decarbonize the economy will take years and probably decades. The U.S. energy system will also need significant investment in energy transmission lines to distribute electricity from renewable energy.  Given these challenges, an energy transition will likely be more gradual than expected.

During this transition period, the U.S. economy will remain vulnerable to oil supply shocks, geopolitical risks, and overall rising energy prices. This will subject the IRA’s energy tax policy to significant political risks. Rising energy prices could bring a backlash against renewable energy and lead to repeal of the bill. Coupled with increasing budget deficits, tax expenditures could be subject to greater political scrutiny. Failure to reduce emissions as projected could also bring a change in policy. Overall, the success of the IRA will depend on whether the benefits of the clean electricity outweigh the rising cost of energy.